Cancellation/discharge of Indebtedness. Under the Internal Revenue Code, a cancellation/discharge of indebtedness may be income to a debtor for tax purposes. See 26 U.S.C. 61(a)(12).
WHAT IS A CANCELLATION/DISCHARGE OF INDEBTEDNESS?
IRS regulations list 8 circumstances which trigger the requirement to report a discharge of indebtedness to IRS on Form 1099-C. These are called identifiable events.
WHAT IS AN IDENTIFIABLE EVENT?
WHAT ARE THE 8 IDENTIFIABLE EVENTS?
The rules regarding identifiable events are very detailed and IRS regulations should be reviewed carefully to understand each event, its limitations and its exceptions.
Very generally, the 8 identifiable events concern discharges of indebtedness involving:
WHAT ARE SOME OF THE RULES REGARDING IRS FORM 1099-C REPORTING?
WHEN MUST THE 1099-C BE FILED WITH THE IRS AND PROVIDED TO THE DEBTOR?
HOW DOES REPORTING A DISCHARGE OF INDEBTEDNESS TO IRS AFFECT THE AGENCY’S ABILITY TO COLLECT ON THE DEBT?
Once a debt is reported to the IRS, no further collection action may be taken by the agency.
STUDENTS – YOU HAVE DONE WELL!
YOU HAVE COMPLETED ALL THE PARTS OF MY TUTORIAL! YOUR PROFESSOR IS PROUD OF YOU!
Congratulations, your are now “TERMINATORS, WRITER-OFFERS, AND DISCHARGERS OF DEBT.”
As a review of your knowledge, I have prepared several questions for you to answer. If you are up to the challenge, proceed to the next part by clicking on the arrow.